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Acknowledged, the GAO decision on Walker Development... cites their own Kingdomware decision from 2011. However, since the Supreme Court heard the case in 2016 and provided a judgment (https://www.supremecourt.gov/opinions/15pdf/14-916_6j37.pdf), the VA immediately changed it's internal rules significantly (effective June 16, 2016), namely establishing that VA contracting officer's in complying with 38 USC 8127 must satisfy rule of two requirements for set-asides; specifically when ordering on Schedule. However, to not take this discussion too far off topic, the principles behind what is allowable due diligence in market research for making any well informed acquisition strategy decisions is really the central debate I have been faced with.

Great discussion all around. The GAO decision http://www.wifcon.com/cgen/407113.pdf is a good read, which establishes some principles to follow for conducting sophisticated market research.
To your question ji20874, regarding set-aside applicability, the passage of the Small Business Jobs Act of 2010 (i.e. section 1331) makes the set-aside of task orders on Schedule permissible to those programs listed at FAR 19.000(3) https://www.govinfo.gov/content/pkg/FR-2012-01-12/pdf/2012-455.pdf. Albeit, for the purpose of this discuss I was more concerned with the principle behind conducting market research in general and the notion that reviewing past performance information at the market research stage is deemed an unacceptable practice with regard to aiding in the determination to set-aside or not set-aside. Ultimately the level of confidence that market research provides in decision making is predicated on how thoroughly it was performed. I struggled to see the logic in denying yourself access a useful repository of information (i.e. past performance) based solely on a wrong interpretation of FAR 42.1503(d).

Given the requirement in accordance with FAR 19.203(d)(1) that market research be used to "determine if there are socioeconomic firms capable of satisfying the agency's requirements, in addition to meeting the "reasonable expectation that offers will be obtained from at least two responsible small business concerns" prior to making a set-aside determination; is there utility in conducting a past performance level of confidence assessment during the market research stage; to make the reasonable expectation determination, that potential bidders can satisfy agency requirements, and in so doing confidently make a set-aside decision?
I found reference to an Air Force Material Command (AFMC) practice: http://www.acq.osd.mil/dpap/ccap/cc/jcchb/Files/Topical/Past_Performance/training/past_performance_eval_jul_07_afmc.pptx
Here the AFMC identifies four distinct activities that involve some degree of past performance assessment, to include obtaining it (1) during the "early phase" of the acquisition, (2) prior to issuance of RFP, (3) prior to proposal receipt, and (4) after receipt of proposals. Not disregarding the fact that there are strict rules around access and handling past performance evaluations (i.e. source selection information), however I don't find an expressed prohibition against using past performance during market research, albeit there are strong opinions that opine such a prohibition does exist.
Does anyone have any experience using past performance evaluations during market research for informing acquisition strategy decisions (i.e. to set-aside or not set-aside). The operating assumption here being that only individuals authorized and qualified to access and properly handle such information would be participating in this activity. My main question I guess would be, is there any reason to conclude that past performance information should only be considered after receipt of proposals; and to do so at any point prior to this is either prohibited or is of no value to the Government?

So I received an advisory opinion from OGC Procurement Law Group today (OGC Ethics Group opinion pending as well). Below is a synopsis of their response to my three main questions as follows:
1. Is there precedent permitting the PM to make such a referral?
Answer was No, with references to FAR 3.101-1, 5 CFR §§2635.502 and 2635.702. Essentially, by the PM making the referral it would be viewed as influencing the contractor to provide preferential treatment to the friend of the Government employee for their financial gain, and additionally, due to the PM also being a benefactor of the contract, there is a personal benefit to the PM gained by virtue of his Government position. They further stated that it would present a conflict of interest for the contractor in question to accept such a referral. Additionally, it would be improper for the CO to knowingly accept any candidate submitted by the contractor that had been hired under these circumstances.
2. What are specific violations that would apply?
Answer was, pursuant to the prohibitions cited at title 5 CFR, there would be a financial interest favoring a friend or affiliate of a Government employee and therefore the violation would be in accordance with 18 U.S.C. § 208(a).
3. What is an appropriate alternative?
Answer was, there was no prohibition against the PM making his friend aware of a public job announcement [emphasis on public information] that his friend could then respond to through typical hiring practices. They stated "by doing this, the employee avoids the appearance that the employee used his or her government position to influence or induce the government contractor to hire the personal acquaintance of the employee."
On this last answer, I would actually take exception given the details of this specific scenario, based on OGCs earlier assertion with regard to the PM being a direct benefactor of the contract service. While the PM might well avoid having actually influenced the contractors decision, if the contractor were to ultimately hire this friend, even if highly qualified, in accordance with 5 CFR 2635.702(d) I believe it would certainly give rise to the appearance that public office might have been used to influence the contractor. At the very least, like Vern stated, it would at a minimum give rise to an awkward situation during contract administration. If the OGC Ethics Group come back with an opinion that's fundamentally the same as the above, then I won't update this post, but if there is new information to inform this discussion I will share.

I appreciate all the feedback. Having come from a contracting office to now working in a program office, and seeing the various goings-on first hand, has been quite the education for me. To provide added perspective - the contract in play includes optional labor hour CLINs for a Lean Six Sigma specialist. The program manager knows a guy, recently retired from active duty, that he is wanting to refer to the incumbent for employment. Once the optional CLIN is exercised, the hope is, that the incumbent will be able to hire the specialist they received on referral. There may well be nothing inherently wrong here, just wanted to get a sanity check. I have also sought an opinion from OGC on this matter as well. I'll post their response for the benefit of this discussion.

Given the title of this post what, if anything is wrong with this scenario?
Is there precedent whereby the Government, seeking to acquire a specific skill, is permitted to headhunt a resume from someone they know and to farm it out to one of their existing incumbent contracts; intending for them to be hired and to work in support of the Governments requirement under contract? What are the specific violations that would apply? What is an appropriate alternative?
Looking for GAO, court rulings, FAR, statute etc.

Thanks all,
FAR 9.505-2(a)(1)(ii) appears to speak directly to the subject at hand. Specifically, "the rule" prohibiting a contractor who prepares or furnishes "complete specifications" from also performing them; offers an exception whereby this rule shall not apply to-
"Situations in which contractors, acting as industry representatives, help Government agencies prepare, refine, or coordinate specifications, regardless of source, provided this assistance is supervised and controlled by Government representatives."

I once found a reference that cited parameters whereby contractors could be allowed to contribute to defining a Government requirement (now nowhere to be found). Does anyone know of citations dealing with this topic and the rules that apply? How would this effect the Governments ability to conduct a meaningful industry workshop, for the purpose of helping define a future requirement, and still allow participants to be able to compete afterward?

My initial question was exactly that, maybe when the statute was written, personal services meant something else. I sought out in-kind statutes and compared 10 U.S.C. 1091 "Personal Services Contracts", and what I found is that this related statute was amended by P.L. 103-160 NDAA 1993 to add the term personal services. The subject statute (38 U.S.C. 513) became law in 1991, so there is certainly sometime in between the two, where the definition of personal services could have still been evolving. In an effort to find a harmonious interpretation of these two statutes I went back to FAR 37.101 Definitions and looked at Non-personal services. Specifically FAC 84-40 to establish what would have been meant by personal services in the years prior to the codified laws in-kind. GAO B-224592 Dec. 23, 1986 and B-234146 Mar. 31, 1989, among others, helped to establish that the definition of personal services we know today is the same definition prevailing during the time both statutes where drafted. Again, in an effort to conclude external consistency with the related statutes and to find a harmonious interpretation, unless the statute in its own text, offers a different definition of personal services, I can only assume the FAR definition is the standard that was used by Congress, the same as it was used by GAO. However, without any statements of the legislature to assist in the interpretation, it might never be known for sure.

38 U.S.C. 513 "Contracts and Personal Services" "The Secretary may, for purposes of all laws administered by the Department, accept uncompensated services, and enter into contracts or agreements with private or public agencies or persons (including contracts for services of translators without regard to any other law), for such necessary services (including personal services) as the Secretary may consider practicable." General Counsel has held that the plain language of the statute above did not intend to authorize issuance of a contract for any service that creates an employer-employee relationship. FAR 37.104(a) say that "[a] personal services contract is characterized by the employer-employee relationship it creates..." I'm confounded by OGC's advisory opinion, in that, the principle cannon of statutory construction is that the legislature says what it means and means what it says. In my view, OGC has by their interpretation, rendered meaningless the term "personal services" from the statute. My question is simply, did the legislature really mean "personal services" or not?

Specifically, with regard to FAR 19.705-2(B )(2), when making the subject determination; "[w]hether there are likely to be product prequalification requirements" is listed as a relevant factor to be considered.
The only reference to product prequalifications I've been able to find is in DFARS PGI 217.75 "Acquisition of Replenishment Parts" at subsection 1-103.25 Qualifications as follows -
Any action (contractual or precontractual) that results in approval for a firm to supply items to the Government without further testing beyond quality assurance demonstrations incident to acceptance of an item. When prequalification is required, the Government must have a justification on file—
(a) Stating the need for qualification and why it must be done prior to award;
(B ) Estimating likely cost of qualification; and
(c ) Specifying all qualification requirements.
http://farsite.hill.af.mil/vfdfara.htm
My question is, would the above reference be the only guidance concerning product prequalification requirements; and consequently if they are required, what needs to be considered, with regard to subcontracting possibilities?

Thanks ji20874 and Vern for the examples, I really appreciate it. To answer Joel's question, we do issue fully burdened labor rates as you have illustrated. Also, thanks to Martin for citing that FAR reference. Respectfully,

I concur, I would fully intend on it being a straight forward approach. I'm not looking to recreate the wheel, just some ideas or examples of what others might have done. I've always heard $500 thrown around which seems randon at best.